Microsoft writes off $6.2 billion spent on aQuantive

Redmond paid $6.3 billion for the advertising firm in 2007.

Microsoft has announced that it will take a one-off write-down for the impairment of goodwill in its Online Services Division. The company attributes this primarily to its 2007 purchase of aQuantive.

Redmond bought the online advertising firm in 2007 for $6.3 billion, making it at the time the company's largest acquisition (since surpassed by the $8 billion Skype purchase). Though Microsoft has slowly increased its online advertising revenue, the company says in its statement that the aQuantive takeover did not "accelerate growth to the degree anticipated."

Goodwill is a firm's intangible value—the value of its brand, its market recognition, the knowledge and skills of its employees, and so on. The enormous write down indicates that Microsoft overpaid substantially for aQuantive. The company offloaded aQuantive subsidiary Razorfish for $530 million in 2009.

Microsoft's statement maintains that apart from the write down, the Online Services Division's business is still improving, but that future growth and profitability expectations are lower than previously estimated.

24 Reader Comments

This is always bad news when companies spend large sums of money on take-overs and their Return is negligible. And this is happening to a large degree quite often in the Technology field.

I think companies should innovate rather than acquire, save yourself 5.3 billion and put an extra billion in R&D and slap your own guys on the R&D tables backs more often and you'll probably compete in the market a lot better then trying to buy your competitor. But then again buying yourself into a market you aren't in yet could "have-been" a good pay off...

addition[7/3/2012@10:12est]: What the article is about is Write-Down not Write-off. Due to the the 6.2 billion dollars being paid, and this addition not doing crap for us, We [Microsoft] are reducing the estimated value of the company [aQuantive] on our books so we will be reporting a lower Asset net-worth.

This should have been the headline, because it is the really shocking news here:Ballmer still has his job!

/shrug. Microsoft as a whole is still enormously profitable and successful, primarily based on the mammoths of Windows + Business (eg. Office), but Server & Tools has been growing impressively for the last few years too.

Would another CEO have done better? Quite possibly; however, given the catastrophic failure of some other technology CEOs in recent history, I suspect the Microsoft board is reasonably happy with Ballmer.

This was about the time that Microsoft smelled the stink breath of the Vista product and wretched out 6.2 billion to change directions. Does anyone remember those days? XP kept Microsoft going long enough to release 7, so Microsoft is 'back in the game baby'

Overall maybe Microsoft is getting the idea that lean and small, not too integrated, not too interdependent is just the way things are.

Modeling the Windows 7 concept on Apple's MacOS / iOS conceptual development back in 2007/8 was a brilliant move, I wonder who thought of that. Frankly I remember the conversation. At the time it wasn't considered a core element of the best-practice document for mobile broadband internally, but it was to me.

Microsoft engineering is really pretty darn good. The weakness is in project / program management, where a light touch and good separation of church and state are essential.

The engineering group dodged a giant axe blade by creating Windows 7, and that axe had a handle that read "Microsoft Advertising and Search Corporation"

Sighs all 'round at Microsoft as the axe is formally written off as unneeded. Might be buying 2-3 shares of Microsoft. I read recently that the benefits of the Personal Computer in the Cloud are the holy grail today.

Security, *privacy* and PC style respect for individual's data, books and resources are in diametric opposition to adverting company DNA like Google and Facebook.

I still don't have a clue how that are going to justify $8 billion on Skype, a company that has never made a dime. $6.2B + $8B = $14B. No matter how you look at it, $14B is a lot of money. Still, they are accumulating cash. It was $40B in 2010, $53B now. So I guess it hasn't done the company any real damage. At worst it will be just the shareholders that suffer.

This should have been the headline, because it is the really shocking news here:Ballmer still has his job!

/shrug. Microsoft as a whole is still enormously profitable and successful, primarily based on the mammoths of Windows + Business (eg. Office), but Server & Tools has been growing impressively for the last few years too.

Would another CEO have done better? Quite possibly; however, given the catastrophic failure of some other technology CEOs in recent history, I suspect the Microsoft board is reasonably happy with Ballmer.

I highly doubt it - MSFT is practically flat for years, the direction changes every 6 months and Ballmer just keep blowing money away on worthless things...

...Ballmer is a disaster, I think everybody knows it - it's just his ilks are everywhere so it's very hard to dislodge him. Dislodge they choose then better do it sooner or this is going to be MS' downfall, the astonishingly clueless uber-bureaucracy at the top. I predict a shareholder riot next year or so, after W8 tanks and results are in (so far it certainly looks like it will or one Surface does not make a Summer, ahem.)

I still don't have a clue how that are going to justify $8 billion on Skype, a company that has never made a dime. $6.2B + $8B = $14B. No matter how you look at it, $14B is a lot of money. Still, they are accumulating cash. It was $40B in 2010, $53B now. So I guess it hasn't done the company any real damage. At worst it will be just the shareholders that suffer.

You don't have a clue about a lot of things huh? Where are your figures that Skype never made a dime?

They posted profits of over 800 million I think it was in 2010. Tons of users, tons of brand recognition. video/voice communication that works well and runs on all major platforms.

I still don't have a clue how that are going to justify $8 billion on Skype, a company that has never made a dime. $6.2B + $8B = $14B. No matter how you look at it, $14B is a lot of money. Still, they are accumulating cash. It was $40B in 2010, $53B now. So I guess it hasn't done the company any real damage. At worst it will be just the shareholders that suffer.

You don't have a clue about a lot of things huh? Where are your figures that Skype never made a dime?

They posted profits of over 800 million I think it was in 2010. Tons of users, tons of brand recognition. video/voice communication that works well and runs on all major platforms.

Again, where are your figures?

More importantly where are your figures from? Skype never posted a positive bottom line after all things considered, it was clearly reported in last year's Ars article about the MS acquisition:

Quote:

Last year, Skype had revenue of $860 million on which it posted an operating profit of $264 million. However, it overall made a small loss, of $7 million, and had long-term debt of $686 million. A $7 billion purchase price would represent a huge premium over the $3-4 billion conjectured in the Facebook and Google deals.

The skype purchase I agree while very expensive...MS pretty much bought themselves a relatively large video/audio market share. To me in the long run that might play into something or into nothing. We'll see Skype (while I believe still taking a loss) is still pretty competitive.

However, this seems deal now looks ridiculous and the fact that MS is able to take the loss is amazing also. Lets see how the Skype purchase pans out.

Goodwill is actually the difference between a company's assets, less its liabilities, and the purchase price.

So if the purchase price was $6.3m, and Microsoft gained "net assets" of $300,000, then the remaining $6m was goodwill.

It's a fairly clumsy recognition that a trading business is worth more than its simple book value. In this example, Microsoft was figuring that the new staff, plus the software, patents etc., and all the skills that came with the acquisition, were going to provide quite a lot of additional value to Microsoft and so it paid a premium.

That premium would have been necessary simply because a company's share price will reflect a much greater value for the company than its net assets if liquidated (of course, this assumes the company was limited by shares, but the broad argument remains valid whatever its ownership structure). Microsoft had to bid over the current share price, and the final difference between what it paid for the company and the assets it could put onto its books is "goodwill".

I've always found goodwill accounting to be strange. It seems like companies get to make stupid acquisitions without admitting to any loss at the time, then write the goodwill off years later, while calling it a "one-time non-cash charge" that you shouldn't really worry about. Of course, I can't really think of a better system. However, there is one thing I'm even more confused about.

Microsoft acquired aQuantive for $6.3B, which must have been almost entirely goodwill. They spun off a part of the acquisition for $530M sometime later. How do they still have $6.2B of goodwill to write off? Shouldn't some of that goodwill have gone with Razorfish when it was sold? I don't know anything about accounting, but that just seems like common sense to me. If they didn't include any goodwill with Razorfish, and it couldn't have had $530M of tangible assets, then they must have recorded the sale as profit. That seems fishy to me. If >98% of the purchase price of aQuantive was goodwill, how can it be that none of that goodwill was attributed to the Razorfish subsidiary?

I've always found goodwill accounting to be strange. It seems like companies get to make stupid acquisitions without admitting to any loss at the time, then write the goodwill off years later, while calling it a "one-time non-cash charge" that you shouldn't really worry about. Of course, I can't really think of a better system. However, there is one thing I'm even more confused about.

Microsoft acquired aQuantive for $6.3B, which must have been almost entirely goodwill. They spun off a part of the acquisition for $530M sometime later. How do they still have $6.2B of goodwill to write off? Shouldn't some of that goodwill have gone with Razorfish when it was sold? I don't know anything about accounting, but that just seems like common sense to me. If they didn't include any goodwill with Razorfish, and it couldn't have had $530M of tangible assets, then they must have recorded the sale as profit. That seems fishy to me. If >98% of the purchase price of aQuantive was goodwill, how can it be that none of that goodwill was attributed to the Razorfish subsidiary?

Probably a tax dodge. That's a different (and much more expensive) division of accounting.

I've always found goodwill accounting to be strange. It seems like companies get to make stupid acquisitions without admitting to any loss at the time, then write the goodwill off years later, while calling it a "one-time non-cash charge" that you shouldn't really worry about. Of course, I can't really think of a better system. However, there is one thing I'm even more confused about.

Microsoft acquired aQuantive for $6.3B, which must have been almost entirely goodwill. They spun off a part of the acquisition for $530M sometime later. How do they still have $6.2B of goodwill to write off? Shouldn't some of that goodwill have gone with Razorfish when it was sold? I don't know anything about accounting, but that just seems like common sense to me. If they didn't include any goodwill with Razorfish, and it couldn't have had $530M of tangible assets, then they must have recorded the sale as profit. That seems fishy to me. If >98% of the purchase price of aQuantive was goodwill, how can it be that none of that goodwill was attributed to the Razorfish subsidiary?

Probably a tax dodge. That's a different (and much more expensive) division of accounting.

You guys are over Psycho-analyzing this situation. the article is about a Write-down, not a write-off. Different accounting. on the SEC documentation handed in every year to both the SEC and the IRS the company must accurately include their Assets net worth.

What the article is about is due to the the 6.2 billion dollars being paid, and this addition not doing crap for us, We [Microsoft] are reducing the estimated value of the company [aQuantive] on our books so we will be reporting a lower Asset net-worth.

So Microsoft made yet another stupid decision. the only surprising part, is how everyone here seems to believe in them. they're entire business model is legacy, and every "revolution" they try to start, backfires and costs them money. they're going to die eventually, the only thing keeping them going is Windows and Office (somehow people like them.) but no one likes Microsoft.

You guys are over Psycho-analyzing this situation. the article is about a Write-down, not a write-off. Different accounting. on the SEC documentation handed in every year to both the SEC and the IRS the company must accurately include their Assets net worth.

What the article is about is due to the the 6.2 billion dollars being paid, and this addition not doing crap for us, We [Microsoft] are reducing the estimated value of the company [aQuantive] on our books so we will be reporting a lower Asset net-worth.

I might not have been very clear. I more or less understand how the write-down works. The issue for me, is that the estimated value of aQuantive did not decrease when a $0.5 billion chunk was sold a few years ago. It seems like part of the aQuantive's goodwill should have been assigned to Razorfish and taken off the books when Razorfish was sold, but somehow there was still $6.2 billion left to write-down today. If some of the goodwill have been assigned to Razorfish, then Microsoft would have reported $X00 million less profit in 2009, and an $X00 million smaller loss today.